Good news for depositors as banks begin hiking deposit rates

If you already have fixed deposits or are planning to invest in one, here's good news for you. Banks have begun hiking deposit rates as money has become scarce following recent RBI measures to suck liquidity from the system to prevent a further fall in the rupee.

Punjab and Sind Bank last week hiked deposit rates for maturity periods 151 days - 179 days, 180 days - 269 days term deposits, which have been increased from 8.00 per cent to 8.25 per cent per annum.

The interest for maturity period from 1 year to 2 years is being increased by 25 basis points from 8.75 per cent to 9.00 per cent.

HDFC Bank, has raised fixed deposit rates by 1 per cent for maturities between 15 days to 6 months one day. On the other hand Axis Bank has raised interest rate on term deposits with maturity between 14-29 days by 4 per cent to 8 per cent. The Bank has also raised interest rates on its 7-14 days deposit to 7.5 per cent on bulk deposits above Rs 1 crore.

Yes Bank, India's fourth biggest Private sector bank, also said that it has revised its deposit rates by 0.25 per cent to 0.50 per cent in select tenors.

The RBI it may be recalled took a number of initiatives to drain liquidity from the market, which is why Banks are forced to hike deposit rates.

It may be recalled that the RBI hiked the MSF requirement for banks. Under the MSF banks were borrowing from the RBI at repo rate, plus 1 per cent, which effectively meant 8.25 per cent. But, with effect from July 17, banks have to borrow at 10.25 per cent, which is a good 2 per cent over and above the existing rates.

In other significant move the RBI also fixed the limit for borrowing at 1% of the of the Net Demand and Time Liabilities (NDTL) of the banking system, reckoned as Rs.75,000 crore for this purpose. The allocation to individual banks will be made in proportion to their bids, subject to the overall ceiling.